News

"Our goal is to focus on upstream integration over the next five years," says Mr Win.

Sahaviriya Steel Industries Plc (SSI) is Thailand's first manufacturer of hot-rolled steel sheet in coils (HRC) and the largest fully integrated flat steel producer in Southeast Asia. It owns and operates SSI Bangsaphan as a mid-stream steel manufacturing plant, with annual capacity of 4 million tonnes of HRC and 1 million tonnes of pickled and oiled HRC, and SSI Teesside, an upstream steelmaking facility in England with an annual capacity of 3.6 million tonnes.Win Viriyaprapaikit, SSI's group chief executive and president, discusses the company's strategy and outlook.

What is SSI's business model?

SSI has been in the steel business for 20 years in Thailand. In the past, we sourced steel slab from all over the world and added value by processing it into HRC. Our customers are predominantly in Thailand and range across a variety of industries such as automotive,electrical appliances, construction,energy, transport, furniture and packaging. Today with the acquisition of Teeside Cast Products in the UK in March 2011, now known as SSI Teesside,we are able to address the key issue for the company, which was sourcing the necessary amount of raw material to fully utilise our assets in Thailand.

What are the different types of products that SSI offers to customers today?

Our primary product is HRC, both pickled and oiled HRC for general use as well as cold-rolled coil and now steel slab. Our aim is to shift more of the sales to premium value products. In 2011 they accounted for 39% of total sales, while for the first half of 2012, they accounted for 41%.

How will SSI Teesside fit into SSI's current business model?

SSI Teesside integrates well into SSI for two key reasons. First, it is a stable source of raw materials, and second it helps us to minimise volatility in price and lead times. Sourcing of raw material in the past had been an issue for us,reflected in our past performance where the mill in Thailand was operating at only 50% utilisation. As steel is not a natural commodity in the region, we wanted to ensure a stable supply source so that as a group we can maximise the value of our assets. Because we now can control the entire supply chain, we can deliver superior products to our customers here in Thailand and in the region.

How is the integration of SSI Teesside progressing?

The acquisition was made in March 2011, and then we spent 12 months to modernise, refurbish and enhance the asset. We subsequently began production this past April and are satisfied in terms of production, as it is currently running at 80% utilisation of a capacity of 3.6 million tonnes per year for steel slab.

SSI is undergoing a large recapitalisation of its equity base. Why is this and what will the funds raised be used for?

We are recapitalising for two main reasons. One is to ensure we have sufficient working capital to support higher sales and the other is to reduce the debt and financial cost for SSI. Since the startup of SSI UK, SSI's mill in Thailand has been able to increase its sales and utilisation to 65% and we are seeing higher sales potential, but in order to support this we will need more working capital.

Second, we want to strengthen our balance sheet to ensure the company has a strong base from which to grow in the future. Thus the recapitalisation addresses both the debt issue and the future revenue issue of SSI.

The uniqueness of what we are doing is that we are offering the shares at higher than the market price of 68 satang a share, and yet this is still 15% lower than the fully diluted book value of the company. Thus, selling too many shares at or below market price would be too dilutive for the shareholders, which is why we also have Japanese partners and other strategic investors, who will participate in the recapitalisation. They are participating because they know the industry, understand the business model,have confidence in management and see SSI's future potential.

What are the biggest risks facing your business?

In the past, we were unable to keep up with a growing market and strong demand in the region, as we did not have the necessary size to compete. Our goal as management has been to ensure the business can succeed hence, the need for the acquisition of a raw materials supply and to start delivering on growth, sales, production increases and consistent quality to customers.

What impact will the Asean Economic Community have on your business?

Today Thailand's steel consumption is 16 million tonnes per year and Southeast Asia's total is only 50 million tonnes despite a population of 601 million. Potentially, the region could easily be a market of 100 million tonnes a year over the next 10 years. Thus, we can see the benefits over the short,medium and long terms for the region.With SSI being the largest integrated producer of steel products in the region,we hope to be able to participate in the region's growth.

Where do you see SSI in five years?

The first thing is SSI will deliver on all goals from upstream integration, with higher sales volume, utilisation, gains in terms of our premium value products and our UK asset generating returns on investment. Once these have been achieved, SSI will then embark on the next phase in terms of transforming our business to include more downstream products, more value-added products,more industrial segments and expansion throughout Asean.